DUBAI: Moody’s on Friday has assigned a Caa1 long-term issuer rating with a stable outlook to the government of Iraq.
The ratings agency likewise gave a provisional Caa1 senior unsecured rating to the country’s bond issuance, a B3 for its long-term local currency and foreign currency bond ceilings and a Caa2 rating for long-term local currency and foreign currency deposit ceilings.
Moody’s said the Caa1 rating, considered to be of poor standing and subject to very high credit risk, was driven by key factors regarding Iraq’s economy, institutional strength, fiscal position as well as political situation.
“Iraq has a relatively large economy that is endowed with very substantial oil wealth, but which suffers from highly volatile growth due to its lack of economic diversification,” Moody’s said.
Iraq’s proven oil reserves were placed at 153 billion barrels, the fifth largest in the world, equivalent to 9 percent of global proven reserves at the end of 2016.
“However, developments in the oil industry as well as base effects have caused a sharp slowdown in growth in 2017, and we are currently forecasting a 0.4 percent contraction in growth in the economy,” Moody’s said.
Moody’s also said that Iraq has some of the weakest governance indicators, and particularly noted the endemic government corruption which ultimately, “undermines the country’s political stability and policy effectiveness.”
The decline in oil prices has also resulted into a serious deterioration in Iraq’s fiscal position, such that its deficit for 2016 at 14.1 percent of the GDP was much larger than the 10.9 percent targeted for the year.
The ratings agency also said that Iraq’s susceptibility to “event risk is very high, against the backdrop of some of the highest political risks in Moody’s rated universe.”
Moody’s said the stable outlook meanwhile was a reflection of “the balance between recent positive developments and the fragility of the country’s overall political, economic and fiscal position.
“The support from the international community gives Iraq an opportunity to bolster the country’s macroeconomic, institutional, fiscal, and balance of payments position,” it said.